NVIDIA Corp.’s chief financial officer said during the company’s first quarter of fiscal 2006 that NVIDIA has ceased production of its system logic for Microsoft Xbox console and that the software giant would not buy any additional Xbox chips from NVIDIA after the Q2 of the company’s fiscal year.

“For Xbox, we expect Q2 to be the last quarter of shipments. Microsoft has indicated they will not take any more products after Q2 and even more importantly we have stopped production of Xbox [components] and expect to have no inventory after Q2,” said Marvin Burkett, NVIDIA’s CFO.

Microsoft purchases hardware components for the original Xbox console, such as core-logic sets (that include built-in graphics processors), microprocessors, memory, central processing units, hard disk drives and other and then outsources manufacturing of the consoles to its other partners. With its Xbox 360 the company will have significantly different business approach and will actually control manufacturing of silicon components itself paying licensing fees for technology developers, such as ATI or SiS.

“The net result we expect to be flat to slightly up from Q1,” Mr. Burkett added referring to the effect of the information on the company’s financial performance.

“The Xbox is at the end of its light phase. Revenue for the quarters of the first half of [our] fiscal year is expected to be much lower than historical levels. We believe that growth in the GPU and MCP businesses along with Sony software and license contributions which begin in Q3 will offset the decline in Xbox revenue,” Mr. Burkett said.

Analyst firm Goldman Sachs claimed in a research note earlier this year that Microsoft Corp. would continue to manufacture and supply the original Xbox console for quite a while after the Xbox 2 launch to address price-conscious customers and emerging markets. Microsoft officials recently confirmed that new games for the Xbox console launched in late 2001 would be released throughout 2007, but the company has not said whether the Xbox console would be sold in volume after 2005.

Ceasing to buy components from at least one supplier means that further manufacturing of the Xbox beyond mid-2005 is limited by the number of components in Microsoft’s stock.

Microsoft did not comment on the news-story.